THE NUMBERS
Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized. Interest Rates: Federal Reserve, Mortgage Bankers Association.
MARKET HEAT MAP
The health of the economy is a key driver of long-term returns in the stock market. Below, we assess the key economic conditions that we believe are of particular importance to investors.
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US ECONOMY |
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CONSUMER HEALTH |
POSITIVE |
Q2 U.S. GDP grew at a 6.5% annualized pace. A very strong number, historically speaking, but below the 8.5% expectation. A lack of inventories, resulting from a constrained global supply chain, reduced GDP by nearly $200 billion. |
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CORPORATE EARNINGS |
POSITIVE |
With more than 90% of S&P 500 constituents having reported Q2 results, sales and earnings growth are running at an astonishing 25% and 89% pace when compared to the heavily depressed figures from Q2 2020. |
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EMPLOYMENT |
POSITIVE |
In June, the U.S. economy added 943,000 jobs, bringing the unemployment rate down to 5.4%. |
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INFLATION |
NEUTRAL |
Inflation remained at 5.4% year-over-year in July, the same reading as June. Fed Chairman Jay Powell believes that the high inflation is transitory and will decelerate as global supply chain bottlenecks resolve. |
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FISCAL POLICY |
POSITIVE |
The Senate passed a $1 trillion infrastructure package. The bill is expected to be voted on by The House by the end of this year. |
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MONETARY POLICY |
POSITIVE |
The Federal Reserve has indicated that it plans to hike rates twice in 2023. The monetary stance is accommodative in the near future; however, the rate at which the Fed raises rates likely depends on the persistence of inflation. |
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GLOBAL CONSIDERATIONS |
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GEOPOLITICAL RISKS |
NEUTRAL |
There are few, if any, looming geopolitical risks that could upset the economic recovery. |
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ECONOMIC RISKS |
NEUTRAL |
With multiple vaccines in distribution and accommodative fiscal and monetary policies in place, 2021 is looking like one of the strongest economic years on record. The primary risk at present is that of persistent inflation which begets higher interest rates. |
The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.